The False Claims Act Guide: 2023 and the road ahead – Technologist

Below are the articles in our latest guide:

Executive summary

2023 was an active year for FCA jurisprudence. The Supreme Court settled two important questions that have long divided the lower courts. Read more…

Supreme Court’s “Goldilocks” approach to DOJ dismissal authority of qui tam actions

The Department of Justice’s (DOJ) dismissal authority: Supreme Court resolves circuit split in standard, but DOJ seems unlikely to pick more fights with relators.

On June 16, 2023, the Supreme Court issued its second opinion on the False Claims Act (the FCA or the Act) for the 2022 term of the Court. In United States ex rel. Polansky v. Executive Health Resources, Inc., the Supreme Court answered two questions about the government’s power to dismiss a qui tam action under subsection 3730(c)(2)(A) of the Act. First, it held that the government may dismiss after it has intervened in the case – regardless of whether it intervenes during the initial seal period or later upon a showing of good cause after initially declining to take over the action. Second, the Court clarified that, when evaluating a government motion to dismiss, district courts should apply the standards governing voluntary dismissal of suits in ordinary civil litigation – i.e., those set forth in Rule 41(a) of the Federal Rules of Civil Procedure. Read more…

DOJ continues its pursuit of cybersecurity fraud under Civil Cyber-Fraud Initiative

As previously discussed, the Department of Justice (DOJ) announced a Civil Cyber-Fraud Initiative aimed at leveraging the False Claims Act (FCA) to target cybersecurity related fraud conducted by government contractors and federal grant recipients. The initiative signaled a focus on improving cybersecurity across the government, public sector, and industry, by securing significant recoveries to reimburse the government and taxpayers for losses incurred.

More than two years later, DOJ has continued its pursuit of civil enforcement against contractors and grantees that fail to satisfy their cybersecurity obligations. The allegations leveled by DOJ against these companies include knowingly (1) providing deficient cybersecurity products or services, (2) misrepresenting their cybersecurity practices or protocols, or (3) violating obligations to monitor and report cybersecurity incidents and breaches. DOJ has brought at least four enforcement actions – including two in 2023 – that have led to settlements as part of its Civil Cyber-Fraud Initiative. Read more…

The “but-for causation” circuit split widens

In 2023, courts continued to grapple with the causation standard used to identify claims “resulting from” violations of the Anti-Kickback Statute (AKS) for purposes of the False Claims Act (FCA). The Sixth Circuit Court of Appeals joined the Eighth Circuit in holding that a plaintiff relying on the “resulting from” language in the AKS to establish FCA liability must show “but for” causation – i.e., that but for the kickbacks, the claims at issue would not have included the item or service alleged to be false.

This contrasts with the Third Circuit, which held in 2018 that a plaintiff need only show “some connection” between a kickback and the subsequent claim. The First Circuit is slated to consider the issue on interlocutory appeal in the coming months. But even as the circuit split created in 2022 has widened, the Supreme Court declined to take up the issue as recently as October 2023. Read more…

Managed care in the regulatory crosshairs

As enrollment in Medicare Advantage and Medicaid Managed Care programs has grown significantly over the past decade, so too has the flow of government health care dollars through these programs. This transition away from traditional, fee-for-service (FFS) reimbursement models to more complex, risk-based payment systems has given rise to intricate legal issues – which, in turn, have the potential to impact increasingly large proportions of patient care and government spending.

In response, regulators and prosecutors have ramped up scrutiny of health plans and providers paid under these systems. The two-fold problem in managed care is that (i) a private third party payor sits between providers and suppliers on one side and the government on the other, and (ii) information submitted to the government by or through the plans has implications on payments for future services, sometimes under future contracts. This set up creates unique issues for enforcement under the civil False Claims Act (FCA) because the law typically relies on claims for payment submitted to the government as the nexus for liability. In this article, we explain why these managed care payment systems raise unique issues, how the U.S. Department of Justice (DOJ) has approached managed care including through the False Claims Act, and where enforcement attention may turn next. Read more…

FCA considerations for private equity firms investing in health care companies

For the past decade, private equity (PE) firms have been steadily increasing their investments in U.S. health care ventures. According to the American Hospital Association, PE firms accounted for 65 percent of physician practice acquisitions as of 2019. Entities that provide care to Medicare and Medicaid beneficiaries are an attractive investment because growth in the delivery of health care services to those populations is steady and predictable, and the investment is considered safe in otherwise turbulent economic conditions.

At the same time, these investments come with risks. As PE firms have ramped up their health care-related investments, government enforcement agencies have likewise increased their scrutiny of PE firms and their association with health care providers. Legislators, regulators, and enforcement agencies have voiced concern that the focus of PE firms on maximizing short-term profits creates incentives to increase costs for payers while reducing the quality of care. Read more…

SuperValu: lowering the hurdles to discovery

In June 2023, the Supreme Court clarified in United States ex rel. Schutte v. SuperValu Inc. that a defendant’s subjective state of mind is relevant and can be sufficient to establish the scienter requirement under the False Claims Act (FCA).

In holding so, the Court declined to adopt the premise that an objective inquiry as to state of mind – specifically, whether a defendant’s actions were “consistent with any objectively reasonable interpretation” of a predicate regulation for an FCA claim – precludes FCA liability. Thus, scienter can exist even if a defendant follows an objectively reasonable but ultimately incorrect reading of an ambiguous statute or regulation, and the defendant was at least aware of a substantial and unjustifiable risk that they were wrong. Read more…

Looking ahead

2023 was another active year for the False Claims Act (FCA) – with the Supreme Court settling aspects of important questions relating both to what must be pled about the nature of a defendant’s knowledge in order to state an FCA claim and the government’s dismissal authority over qui tam suits; the government’s continued pursuit of cybersecurity fraud and COVID-19 relief related fraud; and continued vigorous public and private enforcement of the Act in the health care sector.

2024 looks to be no different. While the Supreme Court has yet to weigh in on a broadening circuit split concerning the proper causal standard for FCA cases predicated on violations of the healthcare Anti-Kickback Statute (AKS), its Supervalu decision concerning scienter shows that the highest court is keeping an eye on the statute, its interpretation, and the government’s methods of enforcement. Thus, these issues will continue to be thoroughly and heatedly litigated in the lower courts. And, if the Supreme Court opens new pathways for challenging agency interpretations of payment-related statutes and regulations by abolishing or curtailing the long-established doctrine of Chevron deference, relators and defendants will undoubtedly search out opportunities to revisit the nexus between regulations and the FCA. Finally, with the expanded 10-year statute of limitations Congress enacted for pursuit of fraud in COVID-19 relief loans and grants, we expect DOJ will expand its current menu of smaller value cases to larger and more complex False Claims suits and settlements involving both borrowers and the financial institutions who processed COVID-19 relief applications.

Below are some predictions, expectations, and developments related to FCA enforcement that we will be closely watching in 2024. Read more…

Click here to view the full guide.

 

Authored by Virginia Gibson, Michael Theis, Gregory Noonan, Mitchell Lazris, Gejaa Gobena, Matthew Sullivan, Stacy Hadeka, Jasmeet K. Ahuja, Thomas Beimers, Maria Durant, Emily Lyons, Elizabeth Och, Michael Dohmann, Katy Forsstrom, Jesse Suh, Stephanie Sandoval, Kayla Ghantous, Hunter Davis, Rachel Stuckey, and Clara Troyer.